Inside the world of business

Placing hope in financial tricks of past

THE NATIONAL Asset Management Agency has received approaches from six parties interested in buying One Warrington Place, a Dublin office block. Amongst the bidders for the property – valued at €28 million – are reported to be Atlas Capital and Prudential.

The sale of any office block in Dublin in the current climate would be noteworthy, but this particular deal is the first one in which Nama is also a provider of finance. The agency has offered to lend the winning bidder up to 70 per cent of the purchase price.

Vendor or staple finance is common enough in the commercial property market, but like everything else Nama does it has to be seen in the wider context. Transactions of this type are very much part of the box of financial tricks that helped propel Irish commercial property prices into the stratosphere.

They have also played a cameo role in the way down, with Green Property agreeing a vendor-financed deal with AIB as the bank sought to offload the €1 billion portfolio of UK properties it seized from alleged fraudster Achilleas Kallakis.

But that should not be allowed to prevent the current deal being assessed on its merits. Nama is without a doubt risking more taxpayers’ money in the property market, when its objective is to extract the taxpayer from the market. But it can justifiably argue that lack of finance is holding back the market and some judicious pump priming is called for at this stage, particularly given the huge mountain of Irish commercial property it has to shift. Taxpayers can take comfort from the fact that Nama is lending only up to 70 per cent of the price – and presumably it has its paperwork in order, unlike the banks that went before it.

Minister for Finance Michael Noonan will announce the taxation measures in Budget 2011, which will total €1.6 billion, in the Dáil this afternoon.

Another takeover deal falters

ANOTHER DAY, another abandoned deal.

The news yesterday that talks between Greencore and a prospective buyer have ended is not surprising.

The food company is the latest in a line of companies that have seen prospective deals falter in the face of the financial crisis.

IFG, Irish Life & Permanent, and most recently Eircom have all been the subject of takeover or investment deals with international parties that have fallen through.

In Greencore’s case, the announcement six weeks ago that the Irish company had received a preliminary takeover approach was particularly surprising.

A takeover bid when Greencore was itself in the midst of taking over another company, Uniq, was never going to be straightforward.Unlike IL&

P and Eircom, Greencore, like IFG, was not in the market for investment.

As takeover targets, both were obliged to consider takeover approaches on behalf of their shareholders.

The motivation behind mounting a preliminary approach in the current economic environment, however, is questionable.

While there is always a gap between buyer and seller, cynics would point out that there is a certain element of bottom fishing at play in tense economic times, though the fact that prospective buyers incur significant costs during the due diligence process would suggest they are to some extent serious about their bids.

Ultimately, however, the repeated assertion from companies that the problem is finance in the current macro-environment is not a red herring.

In the case of IL& P and Eircom, the fact that Ireland represented a significant chunk of their business undoubtedly weighed on investor sentiment, with investors choosing to shy away from investing in Ireland in light of the deteriorating euro zone situation.

With Greencore and IFG the issue was more likely the cost of debt. With banks retrenching, the possibility of funding any deal competitively is a stumbling block that buyers can’t seem to overcome. As the euro zone faces a crunch week, the impact of continued uncertainty on the corporate landscape must be kept in mind.

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